An Introduction to Finance

 Why We Need
Finance
 Stocks, Bonds
and the
Financial
Markets
 Why We Need Finance
 Ensure sufficient
cash for
STARTUP
 Cost of business
comes before
returns from
business
 Why We Need Finance

 Manage cash
carefully for an
existing
company
Securities
 What are securities?
 Claim on the business by an investor
 Equity instruments
 Shares (stocks) of a corporation
 Indicate a share in ownership

 Debt instruments
 bonds, debentures
 Indicate a right to be paid from corporate

assets
Securities
 Why Would the Corporation Sell
Securities?
 Corporation wishes to raise money
 Corporation wishes to sell off part of its
business, so it sells its shares in that
business
Securities
 Why Would Someone Wish to Buy
Securities
 Purchaser wants to invest money, with
the hope of making more
 Purchaser wants to acquire a business
by purchasing its shares
Securities
 Making Money from Securities
 Equity shares
 Dividends
 Capital appreciation

 Debt instruments
 Interest on the loan
 Conversion rights, to change the debt

instrument into shares

Securities
 Shares
 Part ownership in a corporate
 Owning a share may give the holder
 The right to vote at corporate meetings
 The right to receive dividends

 The right to receive a share of the

remaining assets if the corporation is

wound up or dissolved
Securities
 Debt Instruments
 Bond evidences a debt owed to holder
by the corporation
 Debenture also evidences the debt, but
in addition grants a security interest in
assets of the corporation
 No ownership interest, but a right to be
paid before any shareholders if the
corporation is wound up or dissolved
Securities
 Markets for Securities
 Primary market
 Corporation issues the security
 Purchasers pay the corporation for the

security, and the issuer keeps the money

 Secondary market
 Owner sells the security in the market to
someone else
 Owner, not the issuer, keeps the money
Securities
 Making Money from Securities
 Value of shares
 Expected future performance
 Value now

 Asset value on balance sheet

 Cash flows
 Business as a going concern – takeovers
 Greed, fear and the herd
Securities
 Markets for Securities
 A stock market is an association of
members
 Each member has a “seat” on the
exchange
 Having a seat gives the member the
right to trade on the exchange
Securities
 Stock Exchanges
 Toronto Stock Exchange
 New York Stock Exchange
 NASDAQ
 London Stock Exchange
 Many local exchanges
Securities
 New Issues on the Market
 Offering on the market by way of
prospectus
 A complete outline of the finances and
business of the company
 Must offer full, true and plain disclosure

 Those who sign prospectus are personally

liable for the contents

 Prospectus is approved by the Ontario

Securities Commission
Securities
 New Issues on the Market
 An Initial Public Offering (IPO) requires
a full prospectus
 Issuers that go to market more
frequently can use a simpler system
that requires ongoing financial
disclosure
Securities
 Debt Instruments
 Government of Canada bonds allow
federal government to borrow funds
 Canada Savings Bonds
 Provincial bonds
 These bonds often purchased by large
institutional investors
Securities
 Other Investment Securities
 Stock options
 Often issued to senior employees to
ensure interest and loyal
 Give the employee a right to purchase

shares of the corporation at a set price

 If the shares are trading at a price over

the option price, the options are “in the

money.” Otherwise, they are
“underwater”